FBR Analyst Sees Material Improvements Ahead for Sprint Corp (S)

Yesterday, Sprint Corp (NYSE:S) delivered a second fiscal-quarter print that has left FBR analyst David Dixon impressed with the mobile network giant’s stellar momentum and looking forward to “much more to come in 2017.”

Noting “significant” management achievements and the ability for the corporate team to sustain low capex spending, the analyst reiterates an Outperform rating on shares of S with an $8 price target, which represents a 23% increase from where the stock is currently trading.

Sprint posted total net operating revenue of $8.25 billion, outclassing the Street’s projection of $8.00 billion as well as Dixon’s of $8.06 billion. This includes a wireless net operating revenue of $7.85 billion that also outperformed consensus of $7.60 billion and the analyst’s forecast of $7.69 billion. Meanwhile, Sprint reported adjusted EBITDA of $2.35 billion and adjusted free cash flow (FCF) of $707 million.

On back of S’s earnings, Dixon has tweaked his financial year of 2016 revenue estimate to $33.15 billion, adjusted EBITDA to $10.0 billion, and EPS to ($0.11) “to reflect accelerating momentum in the business,” incorporating management’s new guidance into his model.

The analyst opines, “Sprint’s strong fiscal 2Q results highlight that the turnaround is on track. We see material improvements ahead, and believe Sprint is close to cash flow inflection by sustaining low capex spending and progressive interest expense reductions. Relative to TMUS, we believe S is better positioned for long-term sustainable growth due to ample excess spectrum capacity.”

“As it pivots to a (still poorly understood) new network coverage and capacity model with 5 G attributes, management is demonstrating it can spend less on the network while maintaining performance by garnering greater-than-expected utility from its 2.5 GHz spectrum asset,” Dixon concludes, believing Sprint’s strength lies in its “leveraging network vision upgrade tailwinds,” successfully enhancing franchise value.

Moving forward, Dixon recognizes that potential is out there for a prospective merger/acquisition.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst David Dixon is ranked #352 out of 4,197 analysts. Dixon has a 59% success rate and realizes 13.8% in his annual returns. When recommending S, Dixon yields 73.6% in average profits on the stock.

TipRanks analytics indicate S as a Hold. Based on 13 analysts polled in the last 3 months, 3 rate a Buy on S, 7 maintain a Hold, while 3 issue a Sell. The 12-month price target stands at $6.01, marking a nearly 8% downside from where the shares last closed.